tag:blogger.com,1999:blog-7342528022617501525.post5977660839861088893..comments2024-03-28T15:05:33.781+13:00Comments on Economics New Zealand: Outrageous fortunesDonal Curtinhttp://www.blogger.com/profile/03687495556590450225noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-7342528022617501525.post-36174000586300583592014-09-04T15:06:49.816+12:002014-09-04T15:06:49.816+12:00Thanks Donal. Isn't the tax incentive for sma...Thanks Donal. Isn't the tax incentive for small business owners the other way round - since the company tax rates is lower than the max marginal tax rate there are deferral benefits in declaring earnings as profit and leaving them in the business as long as possible? But fair point on small firms in other sectors, including accommodation (B&Bs and motels).Michael Reddellnoreply@blogger.comtag:blogger.com,1999:blog-7342528022617501525.post-71293263026206386542014-09-04T09:17:31.396+12:002014-09-04T09:17:31.396+12:00Thanks Mike. I don't know the answer to the in...Thanks Mike. I don't know the answer to the industry structure question: it's possible retailing ROE for a vertically integrated retailer could be spread across various sub-sectors in perhaps an arbitrary way. On corner dairies, it could be that ROE is high for them for the reason you suggest, though offsetting that are (a) corner dairies have tax incentives to take a salary which would reduce the amount attributed to capital, and (b) there is also, you would think, a longish tail of small boutiques etc in the clothing/footwear sector but its ROE (20.8% '13) hasn't similarly blown out to food retailing levels. Also, just back of an envelope, if we said 40% of food retailing is supermarkets, and 60% corner dairies, and gave the corner dairies a 40% ROE, the ROE on the supermarkets would still be 20% or so, which still looks high relative to the ROE for all industries (9.1%). Incidentally, I think I can also rule out higher leverage as a major factor juicing ROE, as equity as % of balance sheet is only modestly less (31.7%) in the food trade than in industry as a whole (36.7%). So while I'm temperamentally inclined not to find competition 'issues' where there aren't any, I'm kind of left with the Sherlock Holmes position - when you've ruled everything else out...<br />There might be an argument around minimum efficient scale in the supermarket business, but I don't know how you'd prove that one way or another without a very large research exercise.Donal Curtinhttps://www.blogger.com/profile/03687495556590450225noreply@blogger.comtag:blogger.com,1999:blog-7342528022617501525.post-51966034407645865742014-09-03T22:56:17.014+12:002014-09-03T22:56:17.014+12:00especially as at least here, even the adults are o...especially as at least here, even the adults are on the minimum wage and haven't had a pay rise for over 5 years.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7342528022617501525.post-39190618608476788792014-09-03T16:39:37.354+12:002014-09-03T16:39:37.354+12:00Your story about supermarkets looks persuasive, bu...Your story about supermarkets looks persuasive, but perhaps too persuasive? Are you sure there is nothing else that can explain the numbers? For example, I'm wondering how the contrast between an industry structure in which the whole Countdown business (retail outlets, distribution. marketing etc) is owned by a single Australian company, while New World et al are run as a cooperative. Are the profits for the distribution part of the Foodstuffs business showing in a different place than those for the Countdown business? (i'm not sure how any bias might show up, so this is purely a question). And if corner dairies are in that category, is a lot of the return on equity really just a return to the proprietors' labour?Michael Reddellnoreply@blogger.com